In March’s Leasing Life, Stephenson Harwood associate Camilla Neil outlined a proposed update to the Victorian bills of sale legislation that had potentially very damaging implications for vehicle leasing. Her latest update should provide some relief.
In my March 2018 article titled Last Rites for Vehicle Leasing?, I explained the potential impact of the Law Commission’s Goods Mortgages Bill. This legislation was to abolish bills of sale and reform English law relevant to taking security over moveable assets. Creating a simpler form of secured asset finance could have provided more competition to traditional leasing finance models.
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The good news for the contract-hire sector is that the UK government has decided not to proceed with the Goods Mortgages Bill at this time. As we all know, parliamentary time is currently under pressure.
According to the Response to Consultation document published on 14 May 2018, the main reasons for the decision to scrap goods mortgages were: 1. That there should be broader reform of the law of security, and 2. That the proposed consumer protection measures did not go far enough.
The responses to the consultation reflect the diversity of the respondents. These range from Citizens Advice and StepChange Debt Charity to the Consumer Credit Trade Association. One respondent thought that reform to bills of sale legislation could increase the availability of credit to small businesses – with resulting entrepreneurial benefits.
By contrast, another respondent worried that creating a further form of consumer credit could increase sub-prime lending to vulnerable individuals. It was generally accepted that the introduction of an electronic register for goods mortgages would have been a positive step – and about time too!
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By GlobalDataOn first reading the Goods Mortgages Bill, you might think it struck a fair balance on consumer protection. For example, the Law Commission explained that “the simple fact that the goods mortgage is registered would not be enough to fix private purchasers with actual knowledge of it, even if they were negligent in failing to search the register”.
Nevertheless, one respondent was still concerned that the protections for thirdparty purchasers might be weakened by an expectation that a purchaser acting in good faith would always search the register. In addition, there was a risk that the protective (but opt-in) pre-repossession court process might be opted out of as standard. Overall, the responses to the Goods Mortgages Bill consultation were consumerfriendly.
This reflects the wider societal reaction to ‘payday’ loans that arose after the credit crunch. The UK is a debt-driven society in which – in a consumer context – there is a
power imbalance between creditor and debtor. Recent signals from ‘UK PLC’ are that we should be discouraging consumer borrowing rather than encouraging it with novel ways of providing collateral.
Of the highlighted benefits of the Goods Mortgages Bill, the economic case in the SME context was not a strong one. Entrepreneurs can already establish a company to give security by way of fixed and floating charges. The demand for goods mortgages among soletraders wanting to invest was unlikely to offset the negative reactions from respondents on behalf of the consumer community.
According to the FCA, in 2016 there were around 35,000 bills of sale registered at the High Court, compared to 760,000 people taking out high-cost short-term (payday) loans. On announcing the withdrawal, HM Treasury said that because of “the small and reducing market and the wider work on highcost credit, the government will not introduce [the Goods Mortgages Bill] at this point in time”.
It appears that – looking at the numbers – the Goods Mortgages Bill was more hassle than it was worth. Although it is worth keeping in mind that the clock is still ticking for bills of sale.
Meantime, various projects looking at reforming the law of security are still in the pipeline. Some of these are focused on unifying various forms of security into a single-method security – similar to law reform in Jersey, Canada and New Zealand. Look out for the Secured Transactions Code published by the City of London Law Society and the Secured Transaction Law Reform Project.
